Strong US data hammers Euro

The Euro is trading down by a half of a percent on Thursday, back in the 1.0800s, after the release of US and Eurozone PMI data, as well as US Initial Jobless Claims and Philadelphia Fed Manufacturing. The US data broadly came out better-than-expected.

The move pared the gains made on the back of the Federal Reserve's decision to hold interest rates at their current levels and maintain the expectations that it will cut interest rates three times in 2024.The Euro suffered further losses after the release of US PMI data for March, Initial Jobless Claims and the Philadelphia Fed Manufacturing Index all supported the USD and saw the pair fall back close to the day’s lows in the 0.6580s.

US S&P Global Composite PMI came out at 52.2, holding above the 50 level that distinguishes expansion from contraction. US Manufacturing PMI came out at 52.5, beating estimates and previous figures. Services PMI, however, undershot expectations and previous results, coming out at 51.7 in March.The Philadelphia Fed Manufacturing Survey came out higher than estimated at 3.2, and Initial Jobless Claims at 210K were lower than the 215K forecast.

EUR/USD pared its Fed gains after the release of Eurozone HCOB PMI data painted a lopsided picture of growth in the Eurozone. Although the Composite PMI rose to 49.9 thereby beating estimates of 49.7 and the previous February reading of 49.2, an unexpected fall in Manufacturing spoiled the outlook.

HCOB Manufacutruing PMI in March fell to 45.7, declining deeper into contractionary territory (below 50) than had been predicted. Economists had estimated a more bouyant rise to 47.0 from 46.5 previously.Euro area HCOB Services PMI rose to 51.1 in March, beating estimates of 50.5 from 50.2 previous, according to data from S&P Global.
Europe's economic powerhouse Germany, meanwhile, revealed a similar trend, with German HCOB Manufacturing PMI declining to 41.6 which was below estimates of 43.1 and February's 42.5. It too showerd unexpected gains, however, in both Services component and the Composite number.

The decline of the Euro after the data was put down to a "Deeper manufacturing contraction both in Germany and EU," according to Dhwani Mehta, a senior analyst at FXStreet.

At its policy meeting on Wednesday, the Fed left the Fed Funds Rate unchanged at 5.25%-5.50% as widely expected. In its accompanying forecast document, the Summary of Economic Projections (SEP), it continued to foresee rates falling to a median target of 4.6% in 2024, like it did in December.

This is equivalent to expecting around three 25 bps (0.25%) of rate cuts this year, even though some market participants had speculated it might reduce the number of cuts to two because of stickier-than-expected inflation.It did, however, see less rate cuts in 2025, with the Fed Funds Rate falling to a median of only 3.9% rather than the 3.6% in the December SEP.The Fed revised up its GDP forecast substantially, to 2.1% for 2024, from 1.4% in December – regarded by many as indicative of a “soft landing”.The central bank’s preferred gauge of inflation, the Core Personal Consumption Expenditure (PCE) – Price Index, was revised up to 2.6% for 2024 from 2.4% in December.

In his press conference after the meeting, Federal Reserve Chairman Jerome Powell sought to play down the latest batch of hot inflation readings, saying only two months of data was not enough to dissuade the Fed from its path.

The overall interpretation was of a “dovish hold,” which resulted in the US Dollar selling off from overbought territory. The EUR/USD pair, which measures the buying power of a single Euro (EUR) in US Dollars (USD), rallied back up into familiar territory.